K-State Research & K-State Research & Extension Extension Cattle Outlook* Cattle Outlook* James Mintert, Ph.D. James Mintert, Ph.D. Professor & Extension State Leader Professor & Extension State Leader Department of Agricultural Economics Department of Agricultural Economics Kansas State University Kansas State University www.agmanager.info/livestock/marketing www.agmanager.info/livestock/marketing [email protected][email protected]* Presented at Industry Outlook Conference Chicago, IL October 17, 2006
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1 K-State Research & Extension Cattle Outlook* James Mintert, Ph.D. Professor & Extension State Leader Department of Agricultural Economics Kansas State.
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K-State Research & ExtensionK-State Research & Extension
Cattle Outlook*Cattle Outlook*
James Mintert, Ph.D.James Mintert, Ph.D.Professor & Extension State Leader Professor & Extension State Leader
Department of Agricultural EconomicsDepartment of Agricultural EconomicsKansas State UniversityKansas State University
• 4-Firm Concentration Ratio (CR4) increased from 4-Firm Concentration Ratio (CR4) increased from 41% to 78% during ’80’s41% to 78% during ’80’s– Transition to large plant sizes was dramatic Transition to large plant sizes was dramatic – 19721972
• 70% of all slaughter in plants handling less than 250,000 hd/year70% of all slaughter in plants handling less than 250,000 hd/year• 35% of all slaughter in plants handling less than 100,000 hd/year35% of all slaughter in plants handling less than 100,000 hd/year
– 19921992• 70% of all slaughter in plants handling over 500,000 hd/year70% of all slaughter in plants handling over 500,000 hd/year• 4% of slaughter in plants handling less than 100,000 hd/year4% of slaughter in plants handling less than 100,000 hd/year
Source: McDonald & Ollinger, 2005
K-State Research & ExtensionK-State Research & Extension
Large Packing Plants Have Lower CostsLarge Packing Plants Have Lower Costs• Eliminating wage differentials across plant sizes Eliminating wage differentials across plant sizes
provided incentive to build large packing plants provided incentive to build large packing plants
• Large plants paid higher wages in ’60’s & ’70’sLarge plants paid higher wages in ’60’s & ’70’s – 1960-19721960-1972
• Plant size 1% -wages 9% than mid-size plantPlant size 1% -wages 9% than mid-size plant
– 19821982• Plant size 1% -wages 6% than mid-size plantPlant size 1% -wages 6% than mid-size plant
– 19921992• Plant size 1% -no change in wagesPlant size 1% -no change in wages
Source: McDonald & Ollinger, 2005
K-State Research & ExtensionK-State Research & Extension
What Motivated Shift to Large Plants in 1980’s?What Motivated Shift to Large Plants in 1980’s?
• Change in packing plant labor costs facilitated shift to Change in packing plant labor costs facilitated shift to larger plants in the Plainslarger plants in the Plains
– 1978, 45% of meat product workforce was unionized 1978, 45% of meat product workforce was unionized
– Union workers wages 29% > non-union workers Union workers wages 29% > non-union workers
– 1987, just 21% of workforce unionized1987, just 21% of workforce unionized
– In 1960’s & 1970’s, In 1960’s & 1970’s, meatpacking wages 14 to 18% > than manufacturingmeatpacking wages 14 to 18% > than manufacturing
wageswages
– 2002, meatpacking wages were 25% below manufacturing 2002, meatpacking wages were 25% below manufacturing wageswages
Source: McDonald & Ollinger, 2005
K-State Research & ExtensionK-State Research & Extension
Have Packing Industry ChangesHave Packing Industry Changes Been Good or Bad? Been Good or Bad?
Cattle Imports from Canada Are IncreasingCattle Imports from Canada Are Increasing But Remain Well Below 2002’s Record LevelBut Remain Well Below 2002’s Record Level
Jan-July 2006 imports Jan-July 2006 imports 32% below 2002’s and 32% below 2002’s and 21% below 2001’s21% below 2001’s
K-State Research & ExtensionK-State Research & Extension
Beef Imports From Canada DeclineBeef Imports From Canada Decline
K-State Research & ExtensionK-State Research & Extension
Result: U.S. Imports Falling Below 2005’sResult: U.S. Imports Falling Below 2005’s
Annual U.S. Beef Imports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Year
Bil
lio
n L
bs.
Source: USDA & LMIC, 2006-2008 Forecasts
K-State Research & ExtensionK-State Research & Extension
Where Are We Headed?Where Are We Headed?TradeTrade
• U.S. strength is in high quality beef productsU.S. strength is in high quality beef products
• Other countries may have comparative advantage Other countries may have comparative advantage in cow-calf productionin cow-calf production
• Exports to Pacific Rim increasing in ’07Exports to Pacific Rim increasing in ’07
• Regaining market share will take several yearsRegaining market share will take several years
– Market access is keyMarket access is key
• Consumer incomes in importing countries are key Consumer incomes in importing countries are key to long-run growth in exportsto long-run growth in exports
K-State Research & ExtensionK-State Research & Extension
Export Recovery Means Net Beef Export Recovery Means Net Beef Imports in 2007 Could Be 1/2 2004’sImports in 2007 Could Be 1/2 2004’s
Annual U.S. Net Beef Imports
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
Year
Bil
lio
n L
bs.
Source: USDA & LMIC, 2006-2008 Forecasts
K-State Research & ExtensionK-State Research & Extension
Supply Side in the U.S. Supply Side in the U.S.
K-State Research & ExtensionK-State Research & Extension
Mid-Year Inventory Was Above 2005’s, And…Mid-Year Inventory Was Above 2005’s, And…
U.S. All Cattle & Calves Inventory J uly 1 Inventory
Source: AMS-USDA, Dodge City, KS & K-State Research & Extension
KSU Dept. of Ag Econwww.agmanager.info
K-State Research & ExtensionK-State Research & Extension
Feeders In ‘05 Averaged A Record High of $112/cwt.Feeders In ‘05 Averaged A Record High of $112/cwt.Prices in ’06 Could Wind Up Near ’05’s AveragePrices in ’06 Could Wind Up Near ’05’s Average
Average Prices Will Be Higher and Frequency of Price Spikes Could Increase
K-State Research & ExtensionK-State Research & Extension
Where Are Corn Prices Headed?Where Are Corn Prices Headed?Higher Corn Prices Spell Trouble for Livestock ProducersHigher Corn Prices Spell Trouble for Livestock Producers
Source: USDA-Kansas Agricultural Statistics & K-State Research & Extension
1985-1989 Average = $2.23/bu.1990-1994 Average = $2.40/bu. 1995-1999 Average = $2.65/bu.2000-2004 Average = $2.23/bu.2004 Average=$2.59/bu.2005 Average=$2.02/bu.
Ethanol?Ethanol?
K-State Research & ExtensionK-State Research & Extension